Little Silver, Big Gold

Store-of-value gold has never been so expensive against industrial platinum...

Both platinum and gold are useful metals. But where gold's use is ultimately
social - being a thing of beauty, symbol of power, store of value and a means
of exchange since the earliest
civilizations - platinum is primarily an industrial metal. Which isn't
helping platinum versus the gold
price one bit right now.

Platinum - from platina, meaning "little silver" in Modern Latin via
Spanish - was only identified as a precious metal in the mid-18th century.
So it lacks gold's long history of human use. In our modern age of global commodity
markets, unbacked fiat currency, and fast-growing car ownership however, little
silver has always traded at a steep premium to gold - a 46% premium per ounce
on average.

Hence the problem amid our economic depression today. "Platinum lacks safe
haven status and has limited investment demand," explains Morgan Stanley's
commodities team. So gold has never before been this expensive in comparison.

Yes, jewelry accounted last year for nearly
one-third of global platinum demand. But little of that was store-of-value
demand such as gold enjoys. Investment demand remains only a sliver of world
off-take. Whereas demand from the glass, medical, chemical and petroleum
industries comes on top of a further 38% of demand in 2011 coming from the
auto sector. Most notably in Europe, because earlier tax
incentives now mean 1-in-3 vehicles on the continent's roads runs on
diesel, thus needing a platinum-only catalyst instead of the platinum-rhodium
or palladium mix in gasoline engines.

So platinum demand is directly exposed to the Eurozone crisis. So exposed,
in fact, that London bullion prices are now nearing mine-production costs around
$1400 per ounce. Cue the bullish outlook:

"It is hard to see any exploration or investment in new mines taking place
until platinum prices push up well above $1,600/oz," says French investment
and bullion bank Natixis. "Already some producers are making cutbacks," notes
Nikos Kavalis at RBS, adding that "Current price levels are unsustainable." Dan
Smith of Standard Chartered is also bullish, telling Reuters that "High-cost
producers are currently losing money on an operating-cost basis, and the pressure
on the industry can already be seen."

What then of gold and its current but rare premium to more "useful" platinum?
There was a similar squeeze on platinum output - some 75% of which comes from
South Africa - the last time platinum outperformed the gold
price. The first-half of 2008 saw little silver jump 34% as the state-owned
Eskom electricity producer cut power to South Africa's mines in a bid to keep
the lights amid soaring coal prices. Gold couldn't keep up, managing a mere
10% rise in US Dollar terms.

The credit crunch was by then well underway. But while it didn't really grab
the world's lapels and spit in its eye until September '08 - when the collapse
of Lehmans sparked a collapse in trade, investment and business credit worldwide
- leveraged bets on platinum futures, along with a raft of other industrial
commodities, had already turned sharply lower. So "News that might have previously
been viewed as bullish was ignored by the market," said refiner and leading
platinum data source Johnson
Matthey in August 2008, pointing to Eskom's part-closure of a nuclear power
plant - the kind of news which has seen platinum vault $100 per ounce in a
day at the
start of the year.

Store-of-wealth gold at first suffered right alongside. The "net long" position
of speculative players in Comex gold
futures shrank by almost four-fifths in the last six months of '08. The
price, however, slid only 10% between July and Christmas that year, having
found its floor very much sooner - and rising very much faster - than any other
tradable asset. Platinum, in contrast, sank over 55%.

The gold price has
since pulled platinum down to fresh record discounts. Which might signal either
a turn, as the City's professional analysts think, or the true depth of our
current depression. But whatever tight supply might do for "little silver" long-term,
tight credit might trump it meantime.

Formerly City correspondent for The Daily Reckoning in London and head of
editorial at the UK's leading financial advisory for private investors, Adrian
Ash is the head of research at BullionVault,
where you can buy gold
today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

About BullionVault

BullionVault is the
secure, low-cost gold and silver exchange for private investors. It enables
you to buy and sell professional-grade bullion at live prices online, storing
your physical property in market-accredited, non-bank vaults in London, New
York and Zurich.

By February 2011, less than six years after launch, more than 21,000 people
from 97 countries used BullionVault,
owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical
silver (US$129m) as their outright property. There is no minimum investment
and users can deal as little as one gram at a time. Each user's unique holding
is proven, each day, by the public reconciliation of client property with formal
bullion-market bar lists.

BullionVault is a
full member of professional trade body the London Bullion Market Association
(LBMA). Its innovative online platform was recognized in 2009 by the UK's prestigious
Queen's Awards for Enterprise. In June 2010, the gold industry's key market-development
body the World Gold Council (www.gold.org)
joined with the internet and technology fund Augmentum Capital, which is backed
by the London listed Rothschild Investment Trust (RIT Capital Partners), in
making an $18.8 million (£12.5m) investment in the business.

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